Telefonica Said in Talks With Freenet, Unitymedia on E-Plus

Telefonica SA is negotiating with smaller German mobile providers including Freenet AG, Drillisch AG and Liberty Global Plc’s Unitymedia KabelBW as it seeks to win European Union approval for its takeover of Royal KPN NV’s E-Plus unit, people familiar with the talks said.

Telefonica is sounding out whether the companies would be interested in obtaining access to its wireless network while building up their own hardware for tasks such as billing and transmitting data to the network backbone, said two of the people, who asked not to be named because the talks are private. United Internet AG is also talking with Telefonica about a guarantee of wholesale access to faster Internet speeds, they said.

The focus of the negotiations has moved toward additional measures to bolster so-called mobile virtual network operators, which lease capacity from network carriers such as Telefonica, after it emerged that no company is interested in setting up a new system to replace E-Plus.

An agreement on the proposed concessions would allay EU concerns that the $12 billion deal to combine Telefonica Deutschland Holding AG with E-Plus, creating a wireless customer base of 44.7 million, would squeeze competition and increase mobile Internet and mobile tariffs.

Irish Approval

Last week, Hutchison Whampoa Ltd. won EU approval to buy Telefonica’s Irish business by pledging to help a virtual operator transform into a network operator. Potential new infrastructure operators in Germany have until the end of the year to sign deals with Telefonica to purchase assets, two of the people said.

Spokesmen for Telefonica Deutschland, United Internet, Freenet and Unitymedia declined to comment. A representative for Drillisch wasn’t immediately available for comment. Antoine Colombani, a spokesman for the European Commission, declined to comment.

Telefonica Deutschland rose 0.3 percent to 5.62 euros at 9:06 a.m. in Frankfurt. Its Madrid-based parent Telefonica slipped 0.5 percent to 12.14 euros on the local exchange. KPN was little changed at 2.63 euros in Amsterdam.

MVNOs already hold a stronger position in Germany than in neighboring countries. The three largest MVNOs, Freenet, United Internet and Drillisch, have a total of more than 17 million wireless customers.

Bitstream Access

Ralph Dommermuth, United Internet’s chief executive officer, said in an interview last month that he doesn’t rule out the company becoming an wireless network provider, though he added that it’s not feasible for a smaller player to operate the 20,000 broadcasting sites required to cover all of Germany.

Under the concessions, smaller operators have the option of securing sufficient volumes and pricing from Telefonica using so-called mobile bitstream access, the people said. That would give them scale to make it worthwhile to invest in infrastructure such as fiber-optics cables, they said.

United Internet, which operates the wireless provider 1&1, is asking Telefonica Deutschland to promise sufficient availability of fast networks to its own customers after its takeover of E-Plus, one of the people said. United Internet has a roaming agreement with E-Plus that includes transmission based on the high-speed long-term evolution technology.

An approval of deal, which may come by July 10, is seen by analysts as a door-opener for further domestic consolidation.

The value of active or completed intra-European telecommunications deals has jumped to $40.4 billion in the past 12 months from $1.6 billion the year-earlier period. Regulators want to ensure such deals do not mean higher tariffs.

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